Calculation of Reserve Balance Requirements

Reserve requirements are calculated by applying reserve ratios specified in Regulation D to an institution's reservable liabilities (See Reserve Ratios) as reported on the Report of Transaction Accounts, Other Deposits and Vault Cash (FR 2900) during the reserve computation period. The length of a reserve computation period depends on the frequency with which an institution reports an FR 2900 report. Regardless of its length, each reserve computation period is then linked to a 14-day reserve maintenance period (see Reserve Computation and Maintenance Periods) that begins on a Thursday and ends on the second Wednesday thereafter. During each reserve maintenance period an institution must satisfy its reserve requirement in the form of vault cash or, if vault cash is insufficient to satisfy the requirement, in the form of a balance maintained with a Federal Reserve Bank. The portion of the reserve requirement not satisfied by vault cash is called the reserve balance requirement.

The Federal Reserve calculates and provides reserve balance requirements before the start of each maintenance period to depository institutions via the Reserves Central--Reserve Account Administration, which is available on the Federal Reserve Bank Services website. Alternatively, an institution can calculate its reserve balance requirement manually using the worksheets at the end of this chapter. The worksheets replicate the calculations being performed in Reserves Central--Reserve Account Administration.

Reserve Ratios

In this Section:

The dollar amount of a depository institution's reserve requirement is determined by applying the reserve ratios specified in the Federal Reserve Board's Regulation D to an institution's reservable liabilities. Reservable liabilities consist of net transaction accounts, nonpersonal time deposits, and eurocurrency liabilities. Since December 27, 1990, reserve requirements have only been assessed on net transaction accounts, since nonpersonal time deposits and eurocurrency liabilities have had a reserve ratio of zero (Table 3.1).

1. The amount of net transaction accounts subject to a reserve requirement ratio of zero percent or the "exemption amount." Return to table

2. The amount of net transaction accounts subject to a reserve requirement ratio of 3 percent is the "low reserve tranche." Return to table

Net Transaction Accounts

Total transaction accounts consists of demand deposits, automatic transfer service (ATS) accounts, NOW accounts, share draft accounts, telephone or preauthorized transfer accounts, ineligible bankers acceptances, and obligations issued by affiliates maturing in seven days or less. Net transaction accounts are total transaction accounts less amounts due from other depository institutions and less cash items in the process of collection. The Federal Reserve uses data reported on the FR 2900 to compute an institution's net transaction accounts for a particular computation period, and then calculates a reserve requirement by applying the reserve ratios noted in Table 3.1.

Reservable Liabilities Exemption Amount

An institution's reservable liabilities up to a specified amount--the exemption amount--are subject to a reserve requirement of zero percent. The exemption amount is adjusted each year for the next succeeding calendar year. The adjustment in the exemption amount is 80 percent of the percentage increase in total reservable liabilities of all depository institutions, measured on an annual basis as of June 30. (No adjustment is made for a decrease in total reservable liabilities.)

Low Reserve Tranche

An institution's net transaction accounts, up to a specified amount, are subject to a reserve requirement ratio of 3 percent. This amount is referred to as the low reserve tranche. Net transaction accounts above the low reserve tranche are subject to a higher rate, currently 10 percent. The low reserve tranche is adjusted each year for the next succeeding calendar year by 80 percent of the percentage increase or decrease in net transaction accounts at all depository institutions, measured on an annual basis as of June 30.

Allocation of Low Reserve Tranche and Exemption

Foreign-related institutions. All U.S. branches and agencies of the same foreign bank and banking Edge and agreement corporations receive one low reserve tranche and one exemption amount. The low reserve tranche and the exemption amount must be allocated between the reporting offices (or groups of offices) using the Allocation of Low Reserve Tranche and Reservable Liabilities Exemption (FR 2930).

One depository institution is a subsidiary of another depository institution. For example, where one savings and loan association owns another, they will share a single low reserve tranche and exemption even though each is separately chartered. The low reserve tranche and the exemption must be allocated between the two depository institutions using the FR 2930 report.

Reserve Computation and Maintenance Periods

In this Section:

Reserve computation periods are governed by the frequency, either weekly or quarterly, with which an institution files the FR 2900 report. Each reserve computation period is linked to a reserve maintenance period (see graphics on next page). A reserve maintenance period consists of 14 consecutive days beginning on a Thursday and ending on the second Wednesday thereafter. Calendars of computation and maintenance periods for weekly and quarterly reporters are available on the Federal Reserve Banks Services website.

Reserve requirements based on an institution's reservable liabilities during a given reserve computation period must be maintained on a lagged basis (i.e., for a 14-day maintenance period in the future). Any vault cash held by the institution during the same reserve computation period will also be applied on the same lagged basis. If applied vault cash is insufficient to meet the reserve requirement for the future maintenance period, the institution will have a reserve balance requirement.

Weekly Reporters

Weekly reporters are those institutions that submit the FR 2900 report to the Federal Reserve every week. A reporting period is one week long, covering the seven consecutive calendar days beginning on a Tuesday and ending on the following Monday. The computation period for weekly reporters consists of two reporting periods and, therefore, consists of 14 consecutive days beginning on a Tuesday and ending on the second Monday thereafter.

A maintenance period consists of 14 consecutive days beginning on a Thursday and ending on the second Wednesday thereafter. The reserve balance requirement to be satisfied during a maintenance period is based on the average level of net transaction accounts and vault cash held during a given computation period. For weekly reporters, the reserve maintenance period starts 17 days after the end of a reserve computation period.

As illustrated in Figure 3.1, the reserve maintenance cycle for weekly reporters links a 14-day computation period (consisting of two seven-day reporting periods) to a 14-day maintenance period beginning 17 days later.

Quarterly Reporters

Quarterly reporters are those institutions that submit the FR 2900 report to the Federal Reserve one week each calendar quarter, in March, June, September, and December. The quarterly report covers the seven-day period beginning on the third Tuesday of the report month and ending on the following Monday. This seven-day period (the reporting period) forms the computation period for quarterly reporters.

The reserve maintenance cycle for quarterly reporters links one seven-day computation period (as defined above) to an interval of six or seven consecutive 14-day maintenance periods. The lag between the end of a quarterly reporting period and the first day of the maintenance period associated with this computation period will depend on whether the fourth or the fifth Thursday following the end of a quarterly reporting period coincides with the first day of a 14-day maintenance period.

The interval of maintenance periods associated with a computation period will begin on the fourth Thursday following the end of each quarterly reporting period if that Thursday is the first day of a 14-day maintenance period. If the fourth Thursday following the end of a quarterly reporting period is not the first day of a 14-day maintenance period, then the interval will begin on the fifth Thursday following the end of the quarterly reporting period. The interval will end on the fourth Wednesday following the end of the subsequent quarterly reporting period if that Wednesday is the last day of a 14-day maintenance period. If the fourth Wednesday following the end of the subsequent quarterly reporting period is not the last day of a 14-day maintenance period, then the interval will conclude on the fifth Wednesday following the end of the subsequent quarterly reporting period.

Figure 3.2 illustrates how one quarterly computation period links up to an interval of six consecutive 14-day maintenance periods.

Reserve Balance Requirement Calculation Worksheets

In this Section:

Reserve balance requirements are calculated and provided to depository institutions through the Reserves Central--Reserve Account Administration before the start of each 14-day maintenance period. Alternatively, an institution can calculate its reserve balance requirement manually using the following worksheets. The worksheets replicate the calculations performed in Reserves Central--Reserve Account Administration. The worksheets are organized as follows:

Worksheet 1 provides instructions on how to calculate averages of FR 2900 data for a reserve computation period, the first step in calculating a reserve balance requirement. Weekly reporters should complete Worksheet 1A, and quarterly reporters should complete Worksheet 1B.

Worksheet 2 uses the averages from Worksheet 1 (1A for weekly reporters and 1B for quarterly reporters) to calculate a reserve balance requirement.

The data used in the worksheets should be rounded to the nearest thousand, with the exception of the reserve ratios.

The length of a reserve computation period depends on the frequency with which an institution files the FR 2900 report of deposits, either weekly or quarterly. For institutions that file the FR 2900 report weekly, use Worksheet 1A. FR 2900 quarterly reporters should use Worksheet 1B.

For each FR 2900 data item listed in the table below do the following:

Step 2. Sum the end-of-day levels for all seven days in the reporting period (Tuesday through Monday) and enter this figure as the weekly total in Column (1);

Step 3. Divide the Column (1) total (for each data item) by seven and enter the result in Column (2).

Worksheet 1B. Quarterly reporting of seven-day averages from FR 2900

1

2

FR 2900 data items

Weekly total

Seven-day average

A.3, Total transaction accounts

AA.1, Ineligible acceptances and obligations issued by affiliates maturing in less than seven days

B.1, Demand balances due from depository institutions in the U.S.

B.2, Cash items in process of collection

E.1, Vault cash

Worksheet 2. Calculate Reserve Balance Requirements

Computing Net Transaction Accounts

Worksheet 2A Instructions (lines 1 to 7):

Step 1. Copy the averages calculated on Worksheet 1 into lines 1 and 2. (For weekly reporters who completed Worksheet 1A, these figures will be found in Column 4. For quarterly reporters who completed Worksheet 1B, these figures will be found in Column 2.)

Step 3.Copy the averages calculated on Worksheet 1 into lines 4 and 5.

Step 4. Compute your institution's total deductions in line 6 by summing lines 4 and 5.

Step 5. Compute your institution's Net transaction accounts on line 7 by subtracting total deductions (line 6) from Gross transaction accounts (line 3). If the result is a negative value, set Net transaction accounts on line 7 to zero. If your institution's Net transaction accounts are zero, then your institution has a reserve requirement (Worksheet 2C, line 14) of zero and a reserve balance requirement (Worksheet 2D, line 16) of zero, and your worksheet calculations are complete.

Worksheet 2A. Net transaction accounts

Value (in thousands of dollars)

1. Enter seven- or 14-day average amount of A.3, Total transaction accounts calculated in Worksheet 1.

2. Enter seven- or 14-day average level of AA.1, Ineligible acceptances and obligations issued by affiliates maturing in less than seven days calculated in Worksheet 1.

3. Calculate Gross transaction accounts as line 1 plus line 2.

4. Enter seven- or 14-day average level of B.1, Demand balances due from depository institutions in the U.S. as calculated in Worksheet 1.

5. Enter seven or 14-day average level of B.2, Cash items in process of collection as calculated in Worksheet 1.

Step 3. Subtract the Adjusted low reserve tranche (line 10) from Net transaction accounts, adjusted (line 11), and multiply this amount by 0.10 or 10 percent. If the result of this calculation is negative, then set the Amount Reserved at 10 percent to zero.

Reserve requirement (line 14):

Step 4. Your institution's reserve requirement is equal to the sum of the Amount Reserved at 3 percent (line 12) and the Amount Reserved at 10 percent (line 13).

13. Calculate Amount Reserved at 10 percent as Net transaction accounts, adjusted (line 11) less the Adjusted low reserve tranche (line 10) multiplied by 10 percent or 0.10. If the result of this calculation is negative, then set Amount Reserved at 10 percent to zero.

14. Calculate total Reserve requirement as the sum of the Amount Reserved at 3 percent (line 12) and the Amount Reserved at 10 percent (line 13).

Computing the Reserve Balance Requirement

Worksheet 2D Instructions (lines 15 and 16):

Step 1. Copy the average value for vault cash calculated on Worksheet 1 into line 15.

If your institution's average vault cash is less than the reserve requirement (line 15 < line 14), then calculate your reserve balance requirement by subtracting average vault cash (line 15) from your reserve requirement (line 14). In this scenario, your institution must satisfy the non-zero reserve balance requirement by holding balances in an account at the Federal Reserve.

15. Enter seven or fourteen-day average level of E.1, Vault Cash as calculated in Worksheet 1.

16. Calculate Reserve balance requirement as the Reserve requirement (Worksheet 2C, line 14) minus Vault cash (line 15 above). If the result of this calculation is negative, then set Reserve balance requirement to zero.